Investing is an important part of your financial health. Moreover, the right investments can set you up for a comfortable retirement. It can also create financial security that can enable many other beneficial activities throughout life.
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At least, investing can do these things when it’s done the right way. The problem is choosing the right options from the endless number of investments available.
Many professionals try to be formulaic and provide their “11 herbs and spices recipe for success.” These can be helpful, but at the end of the day, every individual needs to tailor their investment strategy to themselves.
With that in mind, here are a few key investment rules, a list of a few examples of different investment options, and some questions to ask yourself as you select the best investments to set yourself up for retirement.
The Three Objectives of Retirement
When discussing retirement, most goals, takeaways, and activities focus on three fundamental principles:
- Safety: Investing can provide a sense of financial security.
- Income: Investing can generate a consistent income.
- Capital growth: Investing can enhance wealth by buying, retaining, and selling growth assets.
Typically, all investments revolve around these three fundamentals in some form or another. Depending on your strategy and age, one or another of the three may be prominent. It’s also important to realize that you can prioritize one over another at different times of your investing timeline.
Different Kinds of Investment Categories
Along with understanding the three fundamental motives behind investing, it’s worthwhile to differentiate some of the different categories that most investments can fall under. Most investments are either growth-oriented or defensively-oriented.
Growth investments are for long-term investing. They aim at accumulating wealth and tend to go through longer up and down trends over time.
Good examples of growth investments include things like shares of stock or owning a property (we define both further down). These tend to have certain elements of higher risk and don’t produce dividends. Even so, historically, they tend to grow in value when given enough time.
As the name implies, defensive investments tend to play down the risk factor and focus more on safety and generating a consistent income.
Common defensive investments include bonds and cash (again, we define both below). These are more stable investments for retirement that can generate profits, interest, and dividends but don’t tend to grow in their inherent value.